Turmoil sees Ted Baker falling out of fashion
IT WAS a busy week for Ted Baker. While the week ended on a more positive note, it started very much off-key. A 15.2 per cent share price drop was followed on Tuesday by an 8.4 per cent fall.
Both were reactions to the emergence of accusations of inappropriate behaviour by the group’s founder, CEO and largest shareholder, Ray Kelvin. A full investigation has been commissioned into the claims.
We will need to wait for the full story to emerge, but at this stage it is clear that the market is worried about the implications for the brand. Mr Kelvin has been instrumental in building Ted Baker up from a single Glaswegian shirt shop to a quirky global lifestyle name.
Its ethos is to present something a little different to the mainstream, an affordable luxury for consumers seeking individuality and indulgence. That’s an attractive niche, and a solid roll-out has helped Ted consistently build profits and dividends.
Not only do the claims around Mr Kelvin have potential to upset the applecart, they have also come at the worst possible moment. There are two reasons for that.
Firstly, Christmas is a hugely important season for retailers, and the unfavourable press coverage isn’t going to help sales.
Second, general trading is tough going. Sales in the 16 weeks to December 1 were slightly behind what was reported last year. While the timing of wholesale orders has weighed on results, the decline sticks out like a sore thumb against the years of double-digit percentage growth.
In fact, when one considers sales are being boosted by new store openings, the decline becomes even more stark.
The challenge of improving in-store sales, and the problems around the leadership, mean shares change hands for around 11 times expected earnings, as opposed to the more premium 30+ enjoyed as recently as 2015. A weaker share price has also pushed the dividend yield over 4.5 per cent. A lower valuation and higher yield are attractions, especially as most analysts think Ted can continue to grow profits and dividends in the near-term.
Still, with end markets the world over looking tough and the investigation into Mr Kelvin only just begun, we can’t rule out things getting worse before they get better.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”